1.22.10

1.22.10

          In the late 1990s  Wall Street firms and the major banks lobbied to have the Glass-Steagall Act repealed. Glass-Steagall was passed in  1933 to prevent a recurrence of the 1929 market crash and great depression. It put a wall between various types of financial firm operations. Brokerage firms were prevented from getting into commercial banking, and commercial banks were prevented from getting into brokerage and investment trading operations. It also was the inception of the Federal Deposit Insurance Corporation (FDIC) that insured bank deposits for bank customers.

          In the late 1990s Wall Street firms and the major banks lobbied to have the Glass-Steagall  Act repealed. Tearing down the walls, letting brokerage firms into banking, and banks into operating trading departments, providing mutual funds, financing hedge funds, etc., resulted in the greedy, crazy risk-taking that blew up in 2007 and 2008.

          It is my contention that Glass-Steagall needs to be re-instated in some form as part of the reform of Wall Street. I didn’t really think it could happen, the banks and their lobbies are so powerful, and at most hoped it would be part of reforms that would take place in coming years. But be careful what you hope for. President Obama’s speech yesterday was a shock, sounding like it is the Administration’s intention to make such moves immediately.

          Very bad timing to even mention it, given that right now the current operations of banks are critical to the economic recovery, and to the new bull market. Banks are one of the few areas making big profits. But they’ve been making them primarily from their investment trading operations. Those profits are important to the fragile economic recovery, and their massive investment operations have been important in getting the new bull market started, and keeping it going in the absence of individual investors and the refusal of all that sideline money to move into the market. Threatening to remove the engine that has been driving the market, and to a great extent the economic recovery, makes no sense.           We are assuming that follow-up explanations will be given, that it is a long-term plan to be phased in over time, after the economy has fully recovered. So far it certainly adds immensely to the market’s uncertainties.

          We are still 100% in CASH.

Till next time

The MTA Staff